Last month I sketched out the "space economy" for you, dividing the "space" space into three parts: old space (the companies that blazed America's path to space in the 20th century), new space (the space start-ups that may define the 21st century), and a few space-adjacent companies that are benefiting from the efforts of the other two.
Today I want to do drill down a little deeper, and get a little more practical. To that end, I'll introduce you to four specific stocks you might want to own -- two from the old space segment of the market, and two more from the new: Boeing (NYSE:BA), Aerojet Rocketdyne (NYSE:AJRD), Maxar Technologies (NYSE:MAXR), and Virgin Galactic (NYSE:SPCE).
Let's begin with Boeing. Thanks to the broad market sell-offs we've "enjoyed" over the past couple of weeks, a lot of stocks are now a lot cheaper than they were a month ago -- but few have fallen as far as Boeing.
In mid-February, when I first penned "3 Ways to Invest in the Space Economy," Boeing shares cost about $340 apiece. Today, they're fully 33% cheaper -- $227 and change. This is partly a function of the coronavirus and the damage it's done to all stocks these past two weeks, and it's partly a function of Boeing's continuing struggles to get its 737 MAX airplane program back on track. One thing that has absolutely nothing to do with Boeing's cheaper stock price, though, is its space business -- which is right on track, and even arguably getting stronger.
Boeing, you see, is the contractor leading NASA's effort to develop a "Space Launch System" rocket to carry U.S. astronauts to the moon. NASA originally developed a complicated plan for returning to the moon, involving rockets, space stations, landers, re-launchers, and dozens of other contractors to help Boeing with the work.
In recent weeks, however, Boeing has championed a plan to claim the lion's share of moon mission funding for itself by developing a direct-to-moon rocketship that doesn't require an orbiting lunar space station to facilitate its mission. Congress, which controls NASA's purse strings, appears to favor Boeing's approach -- and that probably means more money for Boeing.
Currently unprofitable thanks to its 737 mess, Boeing stock may not look like much of a bargain today. But among "old space" companies, it's still arguably the leader -- and a great place to start your research if you intend to invest in space.
Another company worth a good, hard look is Aerojet Rocketdyne, America's leading company in the production of rocket engines. (The four main engines on Boeing's SLS, for example, will all come from Aerojet Rocketdyne.) And while Boeing's profits are currently slumping, Aerojet's are indisputably on the rise.
From a money-losing position just two years ago, Aerojet Rocketdyne has turned its fortunes around of late, booking $141 million in net profit last year (and generating $218 million in free cash flow, according to data from S&P Global Market Intelligence). This success, however, didn't save Aerojet stock from suffering a 19% loss in share price over the last three weeks.
The good news for would-be investors in space, of course, is that when you pair this now-lower stock price with Aerojet's revived profits, what you end up with is a company that costs just 26 times trailing earnings -- and less than 17 times trailing free cash flow. If Aerojet can just manage to keep profits growing at the pace it's set over the past couple of years, the stock should reward investors more than adequately as the new space race gains steam.
Switching gears a bit now from "old" space to "new", MaxarTechnologies has feet planted in both worlds. On the one hand, this relatively new name in the space business makes most of its money from the remnants of several other businesses it has built, or absorbed, in previous years -- specifically, satellite photographers DigitalGlobe and GeoEye.
On the other hand, though, Maxar has also won numerous contracts related to NASA's new moon mission. In recent months, NASA has called upon Maxar to develop new technologies for powering and refueling spaceships in space -- and even building the core elements of the new lunar space station. Separate from the moon mission, Maxar has also become a favorite contractor for NASA and DARPA's efforts to develop ways to refuel and repair satellites in orbit.
Now be aware: Though profitable and free cash flow-positive at present, Maxar is in the midst of a major corporate reorganization. It's not 100% clear whether the Maxar of the future will be as profitable as the Maxar of the past. But as one of NASA's favorite contractors, it would be unwise to bet against it.
So much has been written about Virgin Galactic, Sir Richard Branson's vehicle for the creation of a space tourism industry, that I'm hesitant to say too much more about it, lest I begin to repeat myself. Still, at least a few words on this company's remarkable change in fortunes are in order:
As a true new space start-up, Virgin Galactic currently has little revenue to speak of, much less profits. It's very much a "story stock," and a speculative stock, at present. Be that as it may, at least one very heavy hitter in the field of space economy analysis -- Morgan Stanley -- is firmly in Virgin Galactic's corner.
Just a few months ago, investors were valuing shares in this start-up at a mere $7 and change. But one positive report from Morgan Stanley was all it took to send Virgin Galactic shares rocketing higher to $10, $20, $30 -- nearly $40 a share before the stock began to fall back to Earth.
Irrational exuberance, you say? Maybe yes, maybe no. While Virgin Galactic is unprofitable today, its management is promising to become profitable as early as next year.
Meanwhile, trading at just shy of $20 a share today, Virgin Galactic stock costs barely half what it did just three weeks ago. If you were kicking yourself for not owning it back then, then now may be your chance to rectify that mistake before Virgin Galactic delivers on its promises -- and its stock soars once again.